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A gloom has descended over the landlord community, it began when we were treated like no other business and had the interest on business loans/mortgages (which amount to the same thing in our business) excluded from tax exemption – known as Section 24 because it is Section 24 of the Finance Act 2017.
It has continued as more local government costs have been placed on us and finally some of the announcements in the White Paper – New Deal for Private Renters – have been the last straw for many landlords who sadly are now selling up. There is first hand evidence of this when a landlord offers a property for rent and many of the viewers have said that they are only moving because their landlord is selling when they were happy and wanted a long-term home, this is being reported by landlords all across the country and is the subject of many online discussions. Unintended consequences for which future generations will pay. Enough – we all know where we are.
I learned a long time ago to pick my battles and the fact is that fighting a losing battle is demoralising and unproductive and I want to talk about where I believe we need to concentrate. Whether that is for those motivated to fight or for those who just want to get on with their lives and protect the property business that they have built/are building.
What is on the cards that we know about?
- Losing fixed term tenancies & only two months’ notice from tenants – This is the most likely to happen
There should be a Term in the AST contract which states that: ‘Notice to end the tenancy must be given to expire on the last day of a tenancy period’.
Notice therefore cannot end the tenancy earlier than the end of the third month with 2 months’ notice given before the last day before the end of the tenancy period (usually a month if rent is paid monthly) We would then have a minimum 3 month tenancy not 2 months which has been bandied about because a tenant could not simply move in and give 2 months’ notice.
Cause for concern –
- It is unlikely that we will be able to take more than 2 months’ rent in advance since the contract will essentially be a rolling 2 month contract only 2 months’ rent would be due and taking any more than is due would constitute a deposit which has a max of only 5 weeks.
- It is unclear how one member of a joint tenancy giving notice to leave will impact on the tenancy/other parties to the contract. We will no longer have the right to expect a replacement to be found.
- Even under a fixed term contract it was dangerous to assume that we would have possession on the last day of the tenancy. On a rolling contract there can be no such expectation and we must be cautious about signing contracts for new tenants before notice has been given by the existing tenants, this of course may mean voids between tenancies.
The fact is that in the student market it has worked for years and may well continue to work but there is no doubt that landlords will be nervous about the loss of certainty. The fact that it will also have a negative impact on the students themselves is the best hope we have that Government will reconsider and make the whole student market, not only the PBSA and University accommodation exempt from this part of the proposed legislation.
- Losing Section 21 – There is no doubt that this will happen
This is something we must accept and be prepared to end a tenancy with a delinquent tenant through the courts via a Section 8.
Keeping good records is the key to using Section 8. We should all learn this process or be prepared to engage an eviction specialist but even a specialist will need to see good records to make a solid case.
Section 8 for many grounds – like rent arrears, is much quicker than section 21.
There must be a court hearing, but we do not need to have a legal representative and Tenants can be charged court and legal costs as well as rent arrears.
- De-segregation of HMO for Council Tax – this is happening all over the country and is unlikely to stop.
Applies where rooms are rented individually regardless of ensuite/kitchenette. If the VOA decide to do this there is nothing a landlord can do to prevent it
If it happens, the bill payer becomes the tenant, and the tenant will be invoiced by the council. The landlord will make a saving on this bill, but we should probably reduce our rents by the same amount in order to reduce the impact on our tenants.
Cause for concern
The increase in cost often makes renting a room in an HMO unaffordable or similar in cost to a self contained property and tenants move out.
Where the whole property is let on a joint tenancy, the tenants are the responsible payer and dis-aggregation cannot happen.
- Increasing cost of utilities in All Inclusive rentals – This is happening and is likely to become a big issue in the autumn and winter
There should be a Fair Usage Clause in the contract similar to this:
0000 kWh of electricity and 0000 kWh of gas are included as part of your rental payment.
Should either of these be exceeded, every tenant will be issued with an invoice to pay their share of the additional costs. Should the overall usage be less than the allowance the cost savings will be shared between those tenants who have been in the property for at least 3 months.
Meter readings and utility bills will be provided, and the charges/refunds will be based on the rates charged by the utility provider for that period.
We should also be aware that where tenants are paying their own utility bills the additional costs may put them under financial pressure and we need to consider this when looking at the timing of rent increases.
- Student Market upheaval – Ability of tenants to give two months’ notice at any time will be the biggest challenge and raises the most questions
Until we know more, there is no more to say about the student market other than this is going to be most impacted of all markets by the loss of a fixed term. We can hope that the NSU will make the government aware that students need to know where they will be living for the coming academic year before they settle down to their end of year exams. They also need to know that they won’t need to move because other sharers want to and in fact the fixed term is the appropriate contract for this tenant group.
As we are now looking to at least 2024 before the White Paper becomes law, we need to keep a close eye on the movements. But we are looking at business as usual for academic year starting 2023 and should carry on letting as usual this winter.
- Increasing costs of regulation – Licensing & Increased Energy Performance Requirements
“You can have everything in life you want, if you will just help other people get what they want”. Zig Ziglar
This has been one of the rules that I have lived by.
When I first became the West Midlands Regional Representative for the National Landlords Association in 2006, I was faced with making contact with the 38 local authorities which were in my area. I had no idea where to begin but, remembering the words of Ziglar, I began attending any meetings that these councils held where a landlord was allowed. I won’t say I was welcome because there were very few where that word applied in those days where Mushroom Management of the PRS was the order of the day. I listened carefully to any council representative regardless of what they had to say because I needed to know what they could possibly “want” that I could give them in order to get them to listen to me and other good landlords who genuinely wanted to work with them. I had been working with some of the local authorities, Birmingham and surrounding areas, since the mid ‘90’s when I co-founded the Association of Midlands Landlords as a direct response to the introduction of Licensing and the changes to status of HMO in the Housing Act 2004 which began to take place in 2006. The detail is a story for another day but suffice to say that many of them had begun to see the shortage of social housing, the growing number of homeless people to whom they had a statutory obligation to offer some sort of accommodation and it had dawned on them that the only people who held properties in their areas were small private landlords. Like us or hate us they began to understand that they needed us. The problem is that they only met bad landlords, why would they meet good ones when they made us unwelcome when they were discussing local housing policy? They couldn’t trust us to the point where they could discharge their legal duties by using our properties. Another long story which ended in the Midland Landlords Accreditation Scheme being cloned from the London Landlords Accreditation Scheme which I had been delivering on behalf of the 33 London Boroughs in my other life as a Training Provider. The Midlands scheme is still going strong today and which I am surprised but happy to say I still provide with training seminars.
The Midland Landlords Accreditation Scheme (MLAS) provided
- A Code of Conduct for landlords and letting agents
- Information on legislation and regulation for landlords
- Continual Updated information on legislation and regulation changes etc.
- A robust complaints process which sanctions a landlord who has broken the Code of Conduct
- An opportunity for local authorities to address local issues by providing short seminars for members
- An opportunity for local authorities to mail out (via the Administrator only) to members and invite them to landlord’s events, consultations etc.
- No cost to the local authority the scheme is self-funding and not for profit
Now that I had given them what they needed, I began working for what my landlords needed.
Until I retired from the NLA, just as they became NRLA, in summer 2018 there were no Selective Licensing Schemes on my patch, despite many attempts to introduce them. We had large discounts on Mandatory licenses for membership of MLAS and an additional one for members of NLA. We had regular landlord fora where we were treated with respect and usually given lunch or tea. I co-organised and raised funding for 5 annual conferences where 600 + landlords attended each year, where Ministers and members of the House of Lords number among our speakers and which were free for landlords and agents to attend.
I think that I can claim some success in getting what we needed by helping local authorities to get what they needed.
Unfortunately, we have since gone through the dreadful Lockdowns and it is as though the last 20 years didn’t happen because they are back to getting out the sticks and throwing out the carrots. Landlords are now a means of filling their empty, mis-manged coffers in the form of more licensing, increased fees, penalty fines, increased costs for Planning Applications AND, despite government protests to the contrary, being expected to house delinquent tenants until the last possible moment when, having lost rent and spent on court costs, bailiffs etc., we recover our properties.
OK now that we have got that out of the way let’s return to the business of survival because there are only two options –
Sell up or survive
I know that for many selling up is their only option and I am sorry that they couldn’t make a go of the business I love, but for the rest of us we need to accept that being the “bank of private landlords” for local authorities is a battle we cannot win.
Let me begin by saying that this isn’t me agreeing with landlords being used to fill their coffers but let’s look at this realistically:
The cost of a licence for 5 years, even at £1,500, is less than £6 a week per property –before tax – hardly a major expense even if it’s one we don’t welcome – let them have their licence fees just as the Black Cab Drivers do, and then see Uber picking up their fares with no licence fee to pay. We have bigger battles to fight.
ENERGY PERFORMANCE CERTIFICATES
In my opinion this is the top of the list of battles worth fighting. At the time of writing, mid-July, we have no idea how much we are going to be expected to spend on our properties before they can be put on the Exemption Register to allow us to continue to rent out properties which we cannot bring up to a C level of Energy Efficiency.
We continue to be excluded from ECO funding unless our tenants are in fuel poverty or on certain benefits – this IS NOT GOVERNMENT FUNDING AS WE OFTEN HEAR. This funding was collected from us via our bills from the utility companies – as was made clear on the back of our utility bills – and it is discriminatory to exclude our properties from this funding, especially those properties which are off mains gas or single brick as so many PRS properties are.
The cost of bringing a property up to Band C for Energy Performance, the level which has been mooted, could be thousands and the cap before being able to go on the Exempt Register might be as high as £10,000 per property. Let’s hope that “a property” is not counted as a unit listed on the council tax register, even after tax that is going to take years to recover from in rental income and will mean that some properties will need to be sold and may leave the private rented sector forever. I realise that this is what many local authorities, and even Government ministers, think that they want, but they haven’t thought it through, and we are even now seeing increasing numbers of evictions of people who just cannot find anywhere else to rent if we don’t win this battle homelessness is set to increase to frightening levels.
